From wariness to widespread acceptance, Blockchain technology has come a long way. The underlying technology behind cryptocurrencies, is slowly but steadily altering the business scape, real estate being no exception. The new generation/ current crop of real estate startups are building applications on blockchain technology to deal with the complexities and ambiguities associated with real estate transactions. This is primarily because blockchain, along with possessing the smart contract functionality, has the ability to transform and mitigate inefficiencies and challenges in commercial real estate operations (lease, purchase, management and finance). Further, if there is a trustworthy financial source, eg. a fintech company, the deal tends to be finalized sooner; and with smart contracts and electronic signatures as part of the process, fraud is eliminated in totality.
Smart Contracts:
CRE involves a host of parties in any deal – owners (sellers), buyers, brokers, banks, law firms, governments, utility operators etc. For transactions and identities to remain transparent amongst all parties, blockchain can be used in building ‘smart contracts’ where transactions and terms are automatically recorded, with digital signatures speeding up the process. Deposits and payments are also recorded in a smart contract, and automatically prompted, when the deal reaches a definite state. These payments are made through wallets; the property transferred and the agreement recorded, thus enhancing transparency at all levels.
Property Search Process and Digital Identity:
Blockchain also improves the property search process. Property data is distributed fairly and freely, and brokers have control over their data. Blockchain can expedite the pre-lease due diligence process, driving efficacy and accuracy. Having a digital identity of a real estate property ensures that all the details are in digital form and can enhance lease information management, making the due diligence process effortless. For example in Netherlands, where ‘Securancy’ is working with MIT alumnus to standardize leases. So, if a tower has 20 leases, the lease can be standardized, authenticated and trusted via blockchain, and can further be scrutinized too.
Land Registry:
Land registries, being one of the most ambiguous aspects of CRE, can be moved to a blockchain platform. The technology, not only improves the ‘process of recording ownership in the land registry,’ but also creates records that can be automatically updated, without any manipulations, thus enhancing the precision and protection of land and property ownership. This not only saves time but also makes the property title clear and free. In Dubai, blockchain is used by the land department to record all real estate contracts. It further connects them with utility (electricity and telecom) agencies. Sweden is the first country to have recorded deals on blockchain platform at a national level. To promote sales and development, and to make ownership transparent, Japan is also set to unite the country’s dissimilar real estate databases on the blockchain. In Andhra Pradesh, India, the government is creating a blockchain based registry to tackle bribes and frauds. By 2022, the UK government plans to move the country’s land registry to blockchain. The project will go by the name ‘Digital Street.’ Ukraine and Dubai are expected to follow suit.
What makes this technology so attractive?
Apart from the obvious transparency and minimized scope of tinkering/ tampering with data and titles, streamlining management of assets, it also allows
Fractionalized Ownership
Fractionalized Ownership refers to a combined ownership (in terms of percentage) of a single asset involving multiple owners/investors. Real Estate Asset Ledger is a blockchain based real estate investment trust that facilitates real estate transactions using cryptocurrency where investors can ‘purchase fractionalized non-ownership economic rights from a varied property portfolio for as little as a dollar.’ Atlant is a blockchain based real estate platform ‘that offers tokenized ownership and P2P rental for properties listed on its market place.’ Blocksquare.io is developing a Blockchain-based plug and play system to facilitate CRE tokenization which will allow anyone to buy fractional ownership of assets across the world. Further, Blocksquare’s system can integrate with other investing platforms and offer the same tokenized assets for CRE projects.
Digital Certificates/Tokens:
Blockchain can be used to build secure and flexible platforms for confirming identities, possessions and verification of transactions. CRE assets can also be managed with platforms being able to issue digital certificates. These certificates can be used to verify ownership and transactions. In India, PropertyShare, a Bangalore based startup, has opened the CRE market to retail investors by making available more than 75,000 sq ft of CRE space for fractional ownership. A Dutch startup, Primalbase, is also using the Blockchain technology to allow its clients to ‘use, sell or rent flexible workspaces via digital tokens.’ Via blockchain, utilities usage, meeting room facilities or even food/beverages’ registrations and transactions can be automatically tracked through databases. And with the help of real-time data analysis or mined business intelligence, blockchain can assist in making workspaces more flexible, streamlined and transparent. Resources can then be used where they are needed most. Ultimately blockchain enables smart decision making with the use of data, analysis, and decisions.
Asset Management (Post construction):
Further, the technology can be used to manage the processes of assets post the construction phase. As blockchain is implemented and acts as a digital ledger where activities are asset based (such as electricity); each asset (eg. light fitting) can trigger a sensor, which would in turn release a transaction to the owner/tenant and supplier/maintainer to execute the specific task (change the light) which has already been prescribed in the service agreement. Hence, via smart contracts, the owner and user have complete control and transparency over the assets, while automating payments in the journey.
As Steve Weikal, Head Industry Relations, MIT Center for Real Estate puts it, “Not digital currency, necessarily, but just imagine how important it is in real estate to know where the money is, where it came from, who really controls it, who owns it, where is it stored, and when it gets passed off.” With CRE revenues expected to grow at an annual rate of 2.2% to $1.1 trillion by 2022, the importance of transparency, accountability and ease of operations cannot be over- emphasized and adopting blockchain technology is a step in the right direction.